NoteSchool - June 2022

NoteSchool - June 2022

NoteSchool News JUNE 2022

Are Rental Properties Really the Best Deal? REINVENT YOURSELF FOR THE INFLATIONARY MARKET

A few weeks ago, a very credible real estate investor friend of mine made a post on Facebook about the current state of the market. His two cents boiled down to this: If you’re just entering the market today, you’d better do it with help from someone who has been around the block. It was a word of caution to amateurs jumping into real estate without the help of seasoned professionals like himself — and me! We’re seeing scary appreciation right now, and too many would-be investors are drinking the Kool-Aid, jumping right into buying rental properties without understanding the market. You’ve probably heard that rental properties are the best investment you can have in inflationary markets. People say, “Hey, rent moves with the market, so when inflation goes up, rent goes up!” But here’s where the rubber meets the road: I’ve talked to hundreds of investors with 50-plus rental properties in their portfolios … and the math just doesn’t add up. Rents aren’t rising that fast. And payments are rising faster. Think about it. Even if the increase in rent is true (yes, I’m doubting it), it’s not keeping pace with the increase in mortgage payments due to rising interest rates. The economists pushing rental properties are just grasping at charts that don’t come true in the trenches. My response to my friend’s Facebook post was, “Wise words!! Experience and track record matter the most in stormy seas!” Two or three other investors gave me the big AMEN! Then he responded back, “We’ve certainly experienced our share, haven’t we? And we’re still here!”

What I can do is tell you with 1,000% confidence that when people look back on these inflationary times, they’ll see that creative financing — specifically seller financing related to properties — was one of the most powerful things anybody could do. A lot of people are jumping on the rental property bandwagon right now, but you don’t have to go with the crowd. You can do your own thing, as long as that thing is impactful, like creative financing. Do you think people thought Larry Page and Sergey Brin were geniuses when they were off making algorithms in their garage in 1995? Heck no! But while the rest of the world was still using beepers, they were creating Google. There’s probably some smart 24-year-old out there in the world right now just rocking it, doing something similar in technology that an old guy like me can’t understand. I respect that because back in the day, I was that guy. I may not have the IQ of Larry or Sergey, but I had an impactful magic bullet: I locked in on creative financing and buying defaulted loans. I’ve had to reinvent myself many times over the years, and now it’s time for us all to reinvent ourselves for this inflationary market. Don’t just take the rental property mumbo-jumbo you read online at face value and pour 100% of your money into hard assets. Look around. Listen. And above all, when you need advice, look to people like me who have seen stormy seas.

There’s an old saying: “Never waste a crisis.” In the 1980s, I got inventive and found the note business bonanza in the middle of the most inflationary time we’d seen in modern history. You can do the same today

“You won’t catch me drinking the

I’ve been in this business since the 1980s, when interest rates were 20% and we were in one of the most inflationary markets the country has ever seen. I’ve seen stormy seas, and they’ve taught me a thing or two, so you won’t catch me drinking the Kool-Aid on “hard assets” and rental properties this year. I’m not saying it’s impossible that your rent could outpace your payment — every property, location, and situation is a little bit different! It could happen. But it probably won’t. The word in the trenches just doesn’t check out.

— and my team and I will teach you how. Open up this newsletter to read one

Kool-Aid on ‘hard assets’ and rental properties this year.”

student’s story on Page 3.

–Eddie Speed

NOTESCHOOL.COM

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NEWS IN A

Unlock Your ‘High Performance Habits’ And Gain Long-Term Business Success!

As every inflation graph shows a “hockey stick” increase, inflation is on everyone’s mind. No one knows how high it will go or how long it will last. Here’s a quick recap of our latest findings, as we’ve dug deep to find the most important news stories impacting real estate and note investors. INFLATION HITS 8.5% IN MARCH (HIGHEST SINCE 1981) WITH WHOLESALE INFLATION AT 11.2% • The money supply continues to shrink as mortgage rates go higher. To cool off inflation, the Federal Reserve will hike rates by 75 basis points in June and July. This is about .75%, which is on top of the 1.5% increase already in 2022. This will lead to higher mortgage rates, but opinions vary on how much higher they will go. (Rates were artificially low during the pandemic.) • Mortgage rates are hovering around 5% for 30-year fixed for borrowers with excellent credit. (Interest rates are about the same today as in 2009.) Less qualified borrowers are paying up to 7.5%. • Adjustable-rate mortgages (ARMs) are making a comeback as borrowers cross their fingers that rates will come back down eventually. • As home values increase, property taxes increase along with them. This can limit how big of a loan the borrower can qualify for because it affects the borrower’s debt-to-income ratio. LOAN ORIGINATIONS FALLING FAST • It’s no surprise that mortgage companies are doing very few refinance loans due to higher rates. Refis have been their mainstay as fewer houses have been changing ownership during the pandemic.

Did “Atomic Habits” by James Clear change your life in 2018? Was “Tiny Habits” by BJ Fogg one of your top books of 2019?

If you’ve read those two bestsellers, you’re a step ahead of most entrepreneurs. But you might still be sleeping on one of the original books on the power of habits, which is packed with gems you can’t find anywhere else: Brendon Burchard’s 2017 read “High Performance Habits: How Extraordinary People Become That Way.” Brendon Burchard is a legend in the world of personal development coaching. Oprah.com called him “one of the most successful online trainers in history,” and more than 2 million people have taken his online courses. But with the help of your local library, you can start learning his secrets to success without paying a cent. In “High Performance Habits,” Burchard recommends six specific habits that will help you reach your personal and business goals. He calls this the HP6 model.

1. Seek clarity. 2. Generate energy. 3. Raise necessity.

4. Increase productivity. 5. Develop influence. 6. Demonstrate courage.

As you can see, these aren’t your basic healthy habits like “drink water” and “get eight hours of sleep”! Burchard calls the first three “personal habits” and the last three “social habits,” and in the book he uses real-life examples to explain each habit. He also offers daily exercises that will help you form them. It takes multiple keys to unlock each habit. For example, to demonstrate courage, Burchard says you must “share your truth and your ambitions” by telling someone about your goals every day. But that alone isn’t enough. To truly form the habit, you also need to reframe struggle and zero in on someone worth fighting for — whether that’s your team, your clients, or your children. “High Performance Habits” is a business book, but it’s also a personal development book. It will force you to dive deep into your strengths, weaknesses, and motivations to unlock your real high-performance potential. You can use it to fit more tasks into a day, increase your confidence, or become a better leader — whatever your business needs!

• Both Wells Fargo and JPMorgan report a double-digit decline in loan originations. Layoffs are likely.

• Fannie Mae expects a huge drop in loan originations to $2.8 trillion in 2022 compared to $4.5 trillion in 2021.

• According to HousingWire, mortgage applications will nosedive as rates continue to soar.

FORECLOSURES KEEP INCREASING • Foreclosure activity increased for the 11th consecutive month, but we’re still at less than half the normal foreclosure rate from before the virus. The math says foreclosures will continue to rise, as there is a huge inventory of nonperforming loans that haven’t hit the market — and they can be great investments. The average delinquency of these loans is 30–60 months, but they often have high loan-to-value ratios, currently averaging 77% for houses and 71% for commercial properties. • Black Knight reports March delinquency numbers at more than 1.6 million loans past due or in foreclosure. This shadow inventory has yet to affect listings. Many investors have no idea

Pick up a copy today to see why Andrew Burns of Medium calls this “the epitome of a book that needs more than one read.”

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NUTSHELL

Before he found NoteSchool, Walter Novack was curious about the note business, but he didn’t know where to start. He was new to the real estate game and still scratching his head over the basics like … We Opened Walter’s Eyes to the Power of Notes 1 DAY WAS ALL IT TOOK!

how high this shadow inventory is and what a great opportunity it represents for finding bargains in nonperforming notes.

THE SELLER-FINANCING NICHE CONTINUES TO GROW • $27.3 billion in seller-financed notes were created in 2021, which is up in dollar volume 15.9% from 2020. Private seller-financed transactions are about 4–6% of all real estate deals, with the rest being done by traditional lenders.

• The average note value in 2020 was $180,737, but the average in 2021 went up to $289,201.

What’s the difference between performing and non-performing notes?

• The overall number of seller-financed deals is currently up to about the same as in 2011, when the economy was coming out of the Great Recession and loans were hard to get. The numbers dipped a bit between then and 2021. SINGLE-FAMILY BUILDING STARTS ARE DOWN, BUT MULTI-FAMILY IS UP • Single-family housing starts went down 1.7% in March, which means the demand (and prices) for existing houses will stay high. • Multi-family building starts were up 4.6%. Bear in mind, this refers to buildings — not doors — and one building might have over a hundred doors.

How do you evaluate what a note is worth?

How do you negotiate and structure a performing note deal for maximum profit?

These questions led Walter to join one of our 1-Day Live Training classes. He came out of the session with Eddie excited, informed, and ready to tackle the note business from his home base in Chicago! “I’m still very new to the real estate investment realm, so this has been really eye-opening as far as enlightening me and everyone else to all the possibilities that there are in the investment realm,” Walter says. He was particularly impressed with Eddie’s teaching and said his value is in “the knowledge he brings” after decades of investing, teaching, and weathering the storms of the market. “It’s just been really eye-opening with all the possibilities with notes. And I feel like anyone that’s interested in learning more about notes, this is a really good resource,” Walter says. Our 1-Day Live Training class taught Walter the basics of creative financing, but it’s not our only option! In one of our 3-Day Live Training classes, people like you and Walter can learn even more about the note business and how to get started. You’ll dive into case studies, get up-to-date intelligence, open the door to networking opportunities, and maybe most important of all, find out how to navigate investing in today’s crazy inflationary market. Whether you want to get back into the note business after a break or learn about making serious money for the first time like Walter did, visit NotesSchool.com/Attend-Live-Class .

Grilled Corn and Ricotta Dip

Inspired by Saveur.com

INGREDIENTS DIRECTIONS

• •

6 ears of corn

1. Preheat the oven to 325 F. 2. In a large grill pan on high heat, cook the corn until charred on all sides. Let cool, then cut the kernels from the cob. 3. In a food processor or blender, purée two-thirds of the kernels with the cream, ricotta, flour, and thyme. Season with salt and pepper, and stir in remaining whole kernels. 4. Pour into an 8-inch baking dish. Sprinkle Parmesan cheese on top, and dot with butter. Bake for approximately 1 1/2 hours, until bubbly. 5. Garnish with chives and scallions before serving.

1 1/2 cups heavy cream

• 1 1/2 cups ricotta • 2 tbsp all-purpose flour • 2 tbsp thyme, finely chopped • Kosher salt and freshly ground black pepper, to taste • 1/2 cup Parmesan cheese, finely grated • 2 tbsp unsalted butter, diced • Chives and scallions, finely chopped

NOTESCHOOL.COM

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1 The Truth About Rentals and Inflation 2 Read This Book to Boost Your Performance 2 News in a Nutshell 3 Grilled Corn and Ricotta Dip 3 Walter Shares His Day With NoteSchool 4 Meet TikTok’s Favorite Money Expert Inside this issue

Meet the ‘Financial Feminist’ Tori Dunlap Helps Women Save

A woman stands in front of a camera. She says, “I will have over $30 million by the time I retire, and I’m only 27. Let’s talk.”

“I’m never going to shame people for their oat milk lattes or blame

their brunch habits for not being able to buy a home,” Dunlap told Forbes.

Would you watch the rest of that video? If so, you might want to join the many people who already follow Tori Dunlap (@herfirsk100k) on Instagram and TikTok. By age 25, Dunlap had saved $100,000 thanks to financial advice from her parents — and she turned that process into a business. She launched Her First 100K, a financial coaching service for women, and became a viral success on social media. The Guardian newspaper calls her “the TikTok feminist saving people from debt” and Forbes puts her at the center of the “FinTok” (Financial TikTok) movement. She’s been featured on the “Today Show,” Business Insider, TIME, and BuzzFeed since launching her business in 2019. So, what is she doing right? 1. She knows her demographic. Dunlap talks directly to people just like her: millennial and Gen Z women fighting an uphill battle against the patriarchy and suggestions that deprivation is the only way to save.

Targeting such a specific demographic is a smart strategy because she can tailor her message and marketing dollars just for them.

2. She’s social media savvy. Dunlap jumped on TikTok early, and she plays the algorithm game on both TikTok and Instagram well. By using reels, trending soundtracks, and humor, she makes her social media presence “engaging, entertaining, and actionable,” as she put it to Forbes. 3. She’s not afraid to get personal. On her podcast “Financial Feminist,” Dunlap shares details about her childhood and opens up about her own struggles with money and sexism. This transparency helps convince her fans that she’s the real deal, and because she feels like a friend, they stick around and use her services long term.

To learn more about what makes Dunlap tick, visit HerFirst100k.com.

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